NIK on offset obligations related to the delivery of Rosomak transporters

The contract, which is worth nearly PLN 5 billion, for the delivery of 690 armoured transporters for the Polish army terminates in 2013. The vehicles have been manufactured by the Military Mechanical Works [Polish: Wojskowe Zakłady Mechaniczne SA (WZM)] in Siemianowice Śląskie. The technology as part of offset contracts has been provided by: the Finnish Patria (armoured transporter), the Italian Oto Melara (tower system) and the German Honeywell (inertial navigation system). Having included the changes, the value of the offset contract with Patria currently totals EUR 521 million, with Oto Melara - EUR 343 million and with Honeywell - EUR 49.5 million. As at the end of 2011, the offset value of all obligations (direct and indirect ones) being part of the contracts with Patria and Oto Melara exceeded that value which totalled EUR 611 and 366 million respectively. In case of the contract with Honeywell, the value of obligations was equal to the value of the offset contract. In the course of the NIK’s audit, the deadline for the discharge of those obligations did not lapse yet.

One of the audit findings was that the scale of changes to the object of individual obligations and terms of their discharge (established at the turn of 2002 and 2003) and primarily incorporated in the contracts with Patria and Oto Melara was large. What changed was not only the number and value of obligations but also the schedule of their discharge. It means that at the stage of negotiations and in the first phase of performance of both offset contracts from 2003 to 2006, their selection was improperly prepared and verified. The mistakes made at that time by the government administration and entrepreneurs (offset recipients) resulted from the lack of knowledge, rush and erroneous assessment of usefulness of some of the undertakings for the Polish economy.

The performance of the offset contract with Patria until now has threatened the discharge of all obligations of the offset provider. As at the end of 2011, the company’s offset obligations were credited against the amount being 70 percent of the value of the agreement concluded with that company. The foreign provider did not even undertake discharge of three main direct obligations. It is about the purchase of the total value of EUR 170 million, placed with WZM and with capital groups Huta Stalowa Wola SA (Stalowa Wola Steelworks) and Bumar Sp. z o.o. Considering the short period remaining to the deadline for the discharge of the offset obligation, the Ministry of Economy should intensify its efforts to enforce full discharge of all obligations from Patria. At the same time, Oto Melara’s obligations were credited against the amount of EUR 348 million, which means their total offset value was met. However, there are some obligations within this agreement which the offset provider has not started to discharge yet.  

Four of 43 obligations credited by the end of 2011, with the offset value exceeding EUR 323 million (which makes up 45 percent of the value of all obligations of Patria and Oto Melara), were assigned the maximum offset multipliers. They are guaranteed for the most desired undertakings from the viewpoint of restructuring and modernisation of our economy or arising from the necessity of ensuring security and defensive power of the state. At the same time, the inspectors underline that both foreign providers hinder the discharge of especially desired direct obligations which are related to the transfer of technologies to the defence sector companies so that they could modernise their own production. Instead, they focus on the discharge of indirect obligations placed in companies which are often related to the offset provider in terms of capital and ownership. According to NIK, this is an additional argument for boosting activity of the government administration (the Ministry of Economy) in terms of discharging all offset obligations.

NIK stands in a position that individual companies (offset recipients) could benefit from offset more if the contracts concluded with the foreign (offset) providers were constructed correctly. Until now the contracts have not secured material interests of the Polish entrepreneurs. Such situation occurred with all the audited beneficiaries of direct obligations within the contracts with Patria and Oto Melara.

The key direct obligations were placed with WZM. The offset recipient made a number of mistakes in the contracts with foreign providers: it did not indicate the Polish law as the governing law in case of disputes concerning validity or performance of a contract. It also did not specify the mechanisms securing its own interests in case of non-discharge or improper discharge of the object of offset obligations. Most notably, WZM did not specify precisely what will happen in case of enhancing the transporter, e.g. if the offset recipient should be remunerated or the rights to the modernised vehicle should be transferred onto the offset provider (after the military experiences in Iraq and Afghanistan many corrections were made to Rosomak transporter). But the worst thing is that currently WZM has no prospective licence agreement with the offset provider which would guarantee WZM the right to future production of Rosomak - after the contract termination in 2013. The negotiations in that matter were not successful for Poland until the audit completion date.

According to NIK, the Ministry of Economy has taken advantage of its experiences from the offset contracts concluded to date. The procedures related to their preparation and monitoring of the performance status are being streamlined. The results can be observed in the last offset contract related to Rosomak that was concluded in February 2011 with Honeywell. The negotiations were transparent and the consultations specified the object of obligations so that maximum benefits could be derived from the contract. It is particularly important as in the coming future tenders for the army will be closed for the combat-training aircraft, lorries and attack helicopters. Besides, potential equipment delivery contracts may again go together with the application of the offset instrument.

Article informations

Date of creation:
03 October 2012 14:46
Date of publication:
03 October 2012 14:46
Published by:
Andrzej Gaładyk
Date of last change:
17 October 2012 11:27
Last modified by:
Andrzej Gaładyk
NIK on the discharge of offset obligations related to the delivery of  Rosomak transporters © ISAF

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